Newly Public REITs Back in Investors’ Favor

Real estate investment trusts are receiving more love from investors for their initial public offerings as these companies show Wall Street the money.

According to a report this week from SNL Financial, nearly all the five REIT IPOs completed this year have outpaced returns of the broader market. It was a much different scene a year ago when a lot of issuers had to appease investors with steep discounts or even scuttle offerings as investors remained extremely picky about taking on new REITs.

Who could blame them? Investors had been burned too many times by REIT IPOs that saw their share prices deflate shortly after they became public. The key problems with those deals were they too small in size, poor asset quality or the companies had no proven track record. “What investors got with (those) IPOs were…a number of much smaller companies within traditional property types that maybe didn’t have exposure to desirable markets,” says Keven Lindemann, director of the real estate group at SNL Financial.

Mr. Lindemann says in the last six months there have been a number of non-traditional real-estate companies like landlords of data centers, single-family rentals and farmlands, go public with strong demand.

REITs, which pay no corporate taxes as long as they pay out their taxable income as dividends, raised nearly $1.2 billion via the IPO market as of May 17, according to SNL. Such volume is on track to outpace the $1.3 billion raised in all of 2012 and $1.8 billion in 2011.

Among the companies sporting the greatest post-IPO gains include CyrusOne Inc., a data-center REIT which was up 17.82% as of May 17 since its $360.5 million IPO in mid-January. That return beat the SNL US REIT Equity index return over the same period by 2.79 percentage points.

Health-care landlord Aviv REIT Inc., which raised $303.6 million in an IPO on March 20, posted a return of 51.5% through May 17, outpacing the SNL’s index return of 11.5% during the same time period.